FCA regulation now in effect for claims management companies

Concerns about misconduct by some claims management companies (CMCs) sparked a government review that led to a change in regulation. The changes, announced by the FCA on 1 April, result from the independent Brady Review of the U.K.’s claims management industry. The Financial Guidance and Claims Act 2018 transfers the regulation of CMCs from the existing Claims Management Regulator, which is part of the Ministry of Justice, to the FCA.

“Today brings a new regime and rules for regulating the claims management industry,” said Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA. “Many CMCs play an important role in helping to secure compensation for customers, including for those who otherwise might not make a claim.”

“The new regime has consumer protection and CMC professionalism at its heart,” Davidson added. “It will mean that customers will be protected from claims management cowboys and get a better deal.”

All existing and new CMCs will need to apply to the FCA for authorisation. More than 900 CMCs have registered for “temporary permission” to continue operating while they go through the FCA authorisation process.

Once authorised, the FCA has a range of tools and powers it can use if firms do not comply with the rules. This may involve requiring a firm to change its business practices (e.g. ensuring its communications with consumers are clear, fair, and not misleading), imposing a financial penalty, or refusing to authorise a firm for serious misconduct, the FCA explains.

The FCA said its new regime “aims to boost consumer protection and the professionalism of the sector by driving up standards in the industry. The FCA wants CMCs to be trusted providers of high quality, good value services that help consumers pursue legitimate claims for redress.”

The new FCA requirements include:

• Due diligence on lead generation and rules to prevent firms encouraging customers to make fraudulent, frivolous, or vexatious claims, or claims which have no good basis;
• Providing clear, upfront information to customers about the fees they charge and the services they will provide;
• Giving customers a summary document about the services they will provide before the customer signs a contract;
• Telling customers about free alternatives such as the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS), including in advertising; and
• Recording and retaining customer telephone calls for a year after their final contact with a customer.

The Claims Management Ombudsman, a Financial Ombudsman Service, will now take on responsibility for resolving complaints about CMCs from the Legal Ombudsman as the regulation of these companies transfers to the FCA. Just like the Legal Ombudsman previously did, the ombudsman service will be able to look at complaints about CMCs that work in a range of sectors, including financial services, personal and criminal injury, housing disrepair, specified benefit, and employment. Complaints about CMCs can now be brought directly to the Financial Ombudsman Service, and those already with the Legal Ombudsman are being transferred across.